A lot can change in a year. A year ago, investors were mourning the worst performing year for equities since 2008 and the worst year for bonds in recorded history. There were convincing arguments from notable investors about the end of a decade of easy money, low rates, and a strong global economy. Certainly, the era of low rates may be over or taking a long pause, but it’s clear that we continue to wait for a much-anticipated recession, a recession we could characterize as “chatted up” based on sentiment and past precedence (an inverted yield curve, rising rates, high energy prices, and high inflation). This is reminiscent of the old joke that economists have predicted nine of the last five recessions. Talk of a certain recession has been slowly replaced with talk of the probability of an actual recession, a soft landing, or even no recession at all.

“We are navigating by the stars under cloudy skies.” That was how Jerome Powell, Chairman of the U.S. Federal Reserve, recently described the central bank’s task of taming inflation. We can’t think of a more accurate way to describe the central bank’s job, but those words don’t exactly instill confidence in the single most important organization responsible for steering the largest economy in the world.

It’s been more than three years since the pandemic began, and thankfully the worst is behind us, but the global economy is still dealing with the ramifications of COVID. Debates remain on whether a recession is upon us or not and how deep it could be, while economic data continues to be mostly positive. Last quarter, we wrote about one of the negative implications of the fast tightening of monetary policies by the Fed which contributed to the failure of a few banks which were especially vulnerable. This created some social and market anxiety about the safety of deposits and potential systemic contagion, that have now stabilized, as we thought they might.